Costco versus Wal-Mart

There was a great article in the NY Times this week on warehouse retailer Costco, and how its generous salaries and employee benefits have made it the “anti-Wal-Mart.” Costco shareholders enjoy one of the highest price-to-earnings ratios in the industry, but apparently, that’s not good enough for some investors.

Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco’s customers but to its workers as well.

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”

Mr. Sinegal begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands.

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.”

Costco’s health plan includes extensive dental benefits, and part-time workers are eligible to join after just six months on the job, versus two years at Wal-Mart. As a result, 85% of Costco’s workers enjoy health insurance, compared to less than half of Wal-Mart employees. Costco also contributes generously to workers’ 401(k) plans, starting at 3% of salary after two years, and rising up to 9% after 25.

“When Jim talks to us about setting wages and benefits, he doesn’t want us to be better than everyone else, he wants us to be demonstrably better,” said John Matthews, Costco’s senior vice president for human resources.

The Wall Street response?

Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco’s workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.

“He has been too benevolent,” she said. “He’s right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden.”

It is typical of the angry righties in my comment threads to fling accusations of communism and socialism when unable to formulate a more reasoned rebuttal, but of course, that’s just plain silly. (Debating Tip: the Cold War’s over.) I’ve worked for a number of start-ups, including one of my own, and embrace the entrepreneurial spirit that has built the U.S. into the greatest economic power in history. But I find our nation’s focus on maximizing short-term profits to be cruel, selfish, and in the long run… stupid.

The current winner-take-all attitude of many of our business leaders is not an essential part of a market economy… indeed, I have always believed that the best business transaction is one in which (gasp) both sides benefit. In my own business, I eventually tired of software retailers trying to screw me into one-sided co-op advertising deals, simply because they could. Longtime vendors would eagerly drive me into bankruptcy in a heartbeat if only I were stupid enough to sign the wrong deal — in the end, I pulled back from the consumer market because I refused to work with salespeople who I could never trust to treat me honestly and fairly. Hundreds of other small, independent developers pulled back, sold out, or gave up too, and as a result, the software catalogs are now a shadow of their former selves.

“On Wall Street, they’re in the business of making money between now and next Thursday,” he said. “I don’t say that with any bitterness, but we can’t take that view. We want to build a company that will still be here 50 and 60 years from now.”

Hmmm. Personally, I hate the warehouse shopping experience, but it almost makes me want to renew my lapsed Costco membership.

Comments

I am a customer and shareholder of Costco. If I didn’t think they knew what they were doing, I’d be neither. And, as you know, I’m one of those right-wing nut cases.

Companies should be free to pay as much as they want, or as little as they want. The market place will sort it out. I’m seeing lots of teenagers unable to find jobs this summer because the minimum wage is too high. Businesses can’t justify the high price for non-skilled labor. That’s not a philosophy, just a fact of the check book.

Goldy, it’ll be interesting to keep an eye on MS as well for the next decade. They used to be a company like Costco, where they cared more about their employees than about the shareholders. That all changed a few years back. Gates stepped aside as CEO and now the business folks who cater to shareholders run the show. There’s a growing unhappiness there as there’s a push now to become more efficient, and they’re doing it in a way that is bringing about a lot of job uncertainty. This is my last week there, I just found a contract job in Seattle. They’ll do fine without my blogging ass, but if the discontentment continues and more and more employees leave, the little guys across the industry (and the open source community) will start eating them alive. Microsoft has always relied on employees who are treated so well that they’d work weekends and evenings for no overtime. That’s how they got to the top. Not by selling out to shareholders.

Glad you are still in favor of the free enterprise system for companies you like.

But, gee, you neglected to mention a salient fact. Costco and its controlling stockholders make over 90% of their political contributions to Democrats and leftwing causes. Sinegal is one of the biggest Democratic donors in this state. Walmart and its major shareholders make theirs mostly to Republicans. Could that have anything to do why you and your posters like Costco and hate Walmart?

Both Walmart and Costco have been around for a long time now, and both have shown steady growth through good and bad times. I see no evidence that one company or the other orients itself toward short-term gains at the expense of long term gains, so I don’t see what point you are trying to make. If Costco hits a rough patch they will cut benefits and lay people off just like any other company.

You are trying to say that Walmart is unfair to its employees, but they have become the largest private employer in America, and their payroll continues to grow, so they must be doing something right. Walmart’s payroll is bigger than Costco’s by an order of magnitude, and there isn’t any indication that Costco’s labor practices, or any other practicies, are causing it to gain on Walmart. Quite the opposite.

What Costco does is great if it works for their business plan. Nordstrom has a different system, but if you are good at your job, you can make serious money. You are right in saying that American business is too focused on the short term.

I think if you were to poll a number of us on the Right, you’d find that the issue isn’t giving employees good wages and benefits. The issue is government and unions trying to control how one runs their business — for the benefit of workers and to the detriment of the company. While they talk about long-term security (for their members only), unions are very short-term thinkers and rarely care if they’re hurting a company’s long-term prospects. Government writes broad rules that end up punishing “behaving” companies — all in order to control the few bad ones. A friend who works at L&I has admitted as much.

The companies that survive and grow (like Nordstrom, who has seen its stock price quadruple in the past 5 years) involve employees in the company and hire employees who care about not only themselves, but the health of the company they work for.

On the other hand, I recently heard one USPS employee tell another, “his [my] hurry is not your problem.” And don’t tell me that USPS union members have no benefits or are underpaid.

I place Costco and WalMart in the same category of retail, the Big Box, which should be strictly regulated because of their detrimental impacts upon local retail economies. It’s great that Costco is able to pay higher wages than WalFart and offer benefits, but the overall economic impact of Big Box retail raises the costs of living for the wage-slave numerical consumer units living in model D 2-car garage w/attached house suburban compounds with easy freeway access.

Any company that has to advertise what a wonderful place they are to work at has a problem. I do not see Costco investing money in a campaign to promote how nice they are to work for….they don’t have to.

“I place Costco and WalMart in the same category of retail, the Big Box, which should be strictly regulated because of their detrimental impacts upon local retail economies.” [Artie]……Yes, more regulation of the economy is the answer. Regulate them until they…….just………leave. [hehe]

As a prior Costco employee, I can personally vouch for the positive comments in this article. Costco IS one of the best companies I’ve worked for in terms of wage and benefits. Good thing, cause the work SUCKS! 7 years I spent there, I am still a member, and ALWAYS treat the employees with respect. If it weren’t for the quality reimbursement Jim S offers, they would not have nearly the quality product to offer, nor the stock profile to show for it.

Only complaint is, from the inside, they pay SO well it’s difficult to leave. Most folks are all but stuck because they cant afford the pay cut if they had to start over again. But those who have put in the time are not too bad off.

I LOATHE Wal-mart…what a crap hole of a company..and it shows! Garbage in, garbage out. The quality of their merchandise is fitting for the minimum wage earners they employ, and little more. I heard recently that WM accounts for 10% of the trade defect of the USA…10%!!! Holy crap!

I’ve seen first hand the direct damage WM causes on small communities. In the little town of Cortez, CO., WM came in and over took all the local grocers, auto and druggists, driving long time stores completely into bankruptcy. While it looked like an employment bounce for the locals…they soon found themselves stuck in these dead end, minimum wage positions…with shit (or less) for healthcare, and their town core rotting.

I challenge anyone to find a similar example that Costco created? Granted, I don’t personally approve of the way they are spreading out like a cancer…but at least it’s not as terminal as Wal-Mart…Your source of cheep plastic crap!

Nice to compare the two big warehouse stores…but comparing Costco to Sams club is kind of like comparing Fred Meyers to Walmart. Cosco is a nice place to shop, however Sams has the better deals, lower pricing, and more (nationally) stores. They also make more money…sorry but it is a nice try to push the “democratic” Costco over as the “winner” Goldy

“Companies should be free to pay as much as they want, or as little as they want. The market place will sort it out. I’m seeing lots of teenagers unable to find jobs this summer because the minimum wage is too high. Businesses can’t justify the high price for non-skilled labor. That’s not a philosophy, just a fact of the check book.”

Companies ARE free to pay as much as they want, or as little as they want — down to the minimum wage, that is, and depending on what their employees can negotiate.

Or maybe she thinks we should outlaw collective bargaining — I’m guessing she does. Except that collective bargaining is “the market sorting it out.” The employees and their unions are exercising economic leverage in the marketplace by banding together, just as trade associations do.

Teenagers aren’t failing to find jobs because the minimum wage is too high. It’s because some employers are cheap pricks who refuse to pay the minimum wage. Maybe they shouldn’t be in business, then.

Janet’s faith-based economic theory “the market place will sort it out” was debunked 75 years ago. The right-wingers of the day railed against the minimum wage then and were proven wrong, just they are wrong today.

I’ll quit now, because it’s not polite to make fun of people’s religions.

The fallacy, is that people think they save money buying from WalMart. Not true at all, with the low wages, high turnover and not giving health insurance until after 2 years employment, WalMart costs tons more through inadvertant corporate welfare via food stamps, emergency room visits and public health resources.

You pay the rest of the price for those cheap Chinese products every time you pay your taxes.

Wallmart could put a store in Seattle if they wanted to. Know how left Seattle is they would raise a stink though. Typical of a lefty to stiffle free compitition. Hey if they can get one close to the suburbs that sells groceries I will be happy. The one in Lynnwood doesnt have one… but I get everything else there.

FYI, I have shopped at Walmart twice, and never been in a Sam’s Club. I know that Costco is a Democrat stronghold, but I still think they know what they are doing. Market place, and all that.

As for unions, I think they have been quite destructive of American businesses. They are a big reason why the airline industry is struggling, and the reason US car makers are losing market share, and why Boeing is moving manufacturing to China. The rank and file workers are good people, it is the union bosses that are corrupt. Oh, yeah, and look at the NEA and our public schools. Ever tried to get a pedophile fired?

“The boycott means the unions will not pay $7 million in back dues to the AFL-CIO on Monday. If all four boycotting unions quit the federation, they would take about $35 million a year from the estimated $120 million annual budget of the AFL-CIO.”

Yep – A lot of those dues are extorted from republican union workers. There is a law stating that unions can not force their workers to contribute to polical campaigns through union dues. That doesnt stop the unions thought. And the donks scream about the BIAW.

I personally never shop at WalMart, mostly because of wage/benefits model, plus the policy of squeezing suppliers (sometimes to death) — and the overall longterm effect on the ecomony of these policies. Also because of the generally creepy ambience. I buy everything I possibly can at Costco. Take that, Wall Street.

“Teenagers aren’t failing to find jobs because the minimum wage is too high. It’s because some employers are cheap p***** who refuse to pay the minimum wage.” (my edit)

This statement would indicate to me you’ve never run a small business that depended on low skilled or unskilled labor.

1) Employers are required to pay minimum wage, with a few certain exceptions, like jobs that depend mostly on tips, i.e. waiter/waitress/bartender. So other than these exceptions, employers can’t refuse to pay minimum wage breaking the law.

2) Teenagers are more adversely impacted by a higher minimum wage because they often have little or no skill to offer an employer to justify a higher wage.

Seems like you are out of touch with reality. The minimum wage has gone from a wage floor, to represent a “living wage” in the minds of many. In my opinion this actually hurts many of the people that the law was designed to help, and likely increases the incentive to use the underground economy, thus reducing tax revenue.

Rufusdufus @ 21
Funny, I don’t recall Costco FORCING folks to become members or auto-renewing memberships…dolt, stand by your choice or sit down.
@23 …WTF are you talking about???
@27 Oh my gawd…putting a WM in downtown goes against the grain and principle of WM. Are you aware of ANY metro core that has a WM? It has zilch to do with righties, lefties or politics. It’s all cost and demand…it makes no sense. Not only could they NOT profit from a store downtown…they be hard pressed to find employees and likely even worse customer penetration. And as for the lynnwood Costco…its a “business center” not a standard store. Go to Edmonds…

Dear DumbASSES – it’s clled a FREE MARKET. For you dumbASSES, that means CHOICES for consumers: choices to join or not join, choices of brands, choices of polital actions of the companies, choices of prices. The fact of the CHOICE is the WIN for the consumer, my dear idiot friends. You idjits need to remove the tinfoil hats and STOP looking for conspiracies under every damned rock or around every damned WalMart corner.

A SMART consumer (me) shops BOTH, because a smart consumer (me) knows BOTH have strengths and weaknesses, good value choices for me as well as poor value choices for me.

RUFUS: Here in the middle of UNIONVILLE; NYC. If the Moby Trolls were honest, they would decry a Repub having to pay union dues against their wishes. But alas, they are not honest, hence they are truly donks!

Now I am not lumping all union guys together, but some are patronage jobs and others are lazy jobs. What storekeeper could have people in the store not working to keep the store running? Only in unions. Where do you think HBO gets it’s Soprano show union material from?

Wallmart costs our economy and our social support system. They are nothing but a big leach. You can’t rationalize the jobs they provide when they are subsidized by tax dollars. And you see it in these posts that they contribute to our trade deficit, and trash local retailers. They even gobble up land resources. I have seen them build a huge store, only to close that and build two larger “Superstores”. Poor planning on the city but no ethics for wm.

Puddy, it’s awfully hard to find a bridge or office tower around here that wasn’t built by union labor. I suppose all that steel threw itself together while the union men sat around doing nothing? You need to go back to Neocon University and retake the course in Bullshit 101.

Jimmynap@42
You sound like Ivan and all the rest of the union hacks out there, OK Ill bite, which local retailer that has been trashed by Walmart is not a “leach” on the social support system the same as Walmart? I hope you arent referring to Kmart? Walmart pays its people better than Kmart does or did. I have seen Costco build a huge store only to close it and build a larger “superstore” elsewhere, there is no crime there, it is simply good buisiness, if you cannot handle your customer base, either expand or build a bigger facility. By the way Walmart, from what I have seen doesnt make a practice of closing stores. Actually in my neck of the woods they expand the existing ones. Lastly, Walmart puts people to work…

I don’t see what business it is of Wall Street’s if the business’s bottom line is that they are profitable. Isn’t that supposed to be what a hard nosed busines person is concerned about? If Costco can do this while also giving their employees generous benefits, then good for them.

I do think that comparing Wal-Mart to Costco is more like apples to oranges though. Let’s face it – Costco merchandise is higher quality and the schtick for Costco is to get you to buy in bulk – which Americans absolutely love to do. If you add up the unit price though, suddenly that 2 gallons of Ketchup wasn’t so cheap and now you better get ready to use it fast before it spoils. But then, as the article states, the Costco customers are more affluent.

Walmart’s big thing is low prices and affordable merchandise aimed at the low wage earners. Costco and Walmart are serving different segments of the market.

On a side note:

Goldy – when you did your startups did you employ people? Did you provide medical, dental and helth insurance? Did they make $17/hour working for your company?

having read that article all the way, there are some interesting numbers inside…

“A 2004 Business Week study ran the numbers to test Costco’s business model against that of Wal-Mart. The study confirmed that Costco’s well-compensated employees are more productive.

The study shows that Costco’s employees sell more: $795 of sales per square foot, versus only $516 at Sam’s Club, a division of Wal-Mart (which, like Costco, operates as a members-only warehouse club). Consequently Costco pulls in more revenue per employee; U.S. operating profit per hourly employee was $13,647 at Costco versus $11,039 at Sam’s Club.

The study also revealed that Costco’s labor costs are actually lower than Wal-Mart’s as a percentage of sales. Its labor and overhead costs (classed as SG&A, or selling, general and administrative expenses) are 9.8% of revenues, compared to Wal-Mart’s 17%.

By compensating its workers well, Costco also enjoys rates of turnover far below industry norms. Costco’s rate of turnover is one-third the industry average of 65% as estimated by the National Retail Foundation. Wal-Mart reports a turnover rate of about 50%.

With such rates of employee retention, Costco’s savings are significant. “It costs $2,500 to $3,000 per worker to recruit, interview, test and train a new hire, even in retail,” said Eileen Appelbaum, Professor at Rutgers University’s School of Management and Labor Relations. “With Wal-Mart’s turnover rate that comes to an extra $1.5 to $2 million in costs each year.”

windie@51
“The study shows that Costco’s employees sell more: $795 of sales per square foot, versus only $516 at Sam’s Club, a division of Wal-Mart (which, like Costco, operates as a members-only warehouse club). Consequently Costco pulls in more revenue per employee; U.S. operating profit per hourly employee was $13,647 at Costco versus $11,039 at Sam’s Club.”

Your facts only drive home the fact that Sams sells for less than Costco, Sams is significantly larger than Costco (sheer amount of stores nationally), and Sams brings in more profit than Costco. You throw in turnaround of Walmart…cute but Sams doesnt have that high a turnover…apples and oranges.

The thing about Walmart is that they are just warm bodies doing simple menial tasks and they aren’t tasked to use their brains much. I once wanted directions to the location of a Richland Walmart and when I called, the clerk was flustered and handed me off to a manager. The manager couldn’t tell me either. All she could remember was that there was a church on the way to the store.

“Put another way, the 102,000 Sam’s employees in the U.S. generated some $35 billion in sales last year, while Costco did $34 billion with one-third fewer employees”

combined with ~28% less turnover (at $2500 per new hire per walmart’s numbers), you can see why Costco has a better business model.

I swear you people are taking this position either because you have to disagree with goldy or because, as a rightwing organization, Walmart has to be better than the ‘lefty’ costco to you… Either way is stupid.

sockpuppet@56
I thought even you could come around and realize that if you lower the price on widgets, you can sell more of them, guess what? Walmart and Sams cub sell more wigets than anyone on the face of the earth! Wake up!

Do you work for Walmart or something? Why are you so obviously devoted to them against costco despite the numbers?

Costco’s system is better for everyone involved, ignoring the costs that walmart callously dumps on the taxpayers…

~~~~~~~~~~

Why am I surprised? A right-wing wackjob takes percieved upfront profits against sustained development and consistancy. If you folks won’t show any foresight in politics or environmental issues, why would business be any different?

The best part is that when confronted with facts that the way you support is wrong, you… ignore them.

windie@59
If that was the case, Costco would be the bigger company…or make more in total sales…do they do either? No as a matter of fact they take a back seat to Sam’s in both sales and size. No I dont work for Walmart or Sam’s either one, dont even have a Sams card anymore. I do have a Costco card though, and as I said in previous postings, nice place to shop, but fact is if you want the best bang for the dollar (isnt that why you would buy mega products) Sams has the edge. In this part of the country though Sam’s overshadowd by Costco stores (Could be the fact that this is the Costco home state couldnt it?) There are 2 Sams clubs in Little Rock alone.

Walmart (and Sams Club by extension) have been extremely aggressive in expanding. Costco has been much less so.

The fact remains, in any size-adjusted methodology I’ve found costco is doing better… AND its better for its workers, and the public.

And it does it better while allowing (but not enforcing) unions, avoiding outsourcing, paying very good wages, and offering nearly comprehensive healthcare. Even if it were less successful, isn’t it a better business model for the community around it?

Umm, you know what Walmart does to people suspected of being pro-union right? They’re intensely nasty to the edge if illegality in their anti-union activites. IE, closing their meat-packing operation when their butchers joined a union.

More numbers:

Costco vs. Wal-Mart
Comparing some workplace statistics, as reported by the companies.

windie@63
There you go again, comparing Costco to Wlmart. The only fair comparison is Costco against only the Sams Club portion. Then you compare the Walmart end of the buisiness to say the now moot Kmart or a simular store….dont compare apples to oranges.

Dunno chuck, for some reason I’ve ended up doing a fair amount of research on this subject today (slow work day :D)… and I”m not impressed.

So lets go back a step. What, really is your objection here? If someone says that Costco is making good profits by (or while) paying above average wages and giving excellent benefits, why do you have a problem with that?

RR@46: You decide to take on my second paragraph while skipping the first. No Moby troll will admit taking union dues from members who disagree with your position is wrong and illegal. It happens all the time with the NEA and WEA. But when has that stopped a lefty in their zeal for underhandedness?

Windie@59: You said: “The best part is that when confronted with facts that the way you support is wrong, you ignore them.” That is EXACTLY what RR did. He pulled the standard Moby Troll. Ignore the part you know is true and try ans answer the part that could make your point.

RR: My parents were union labor. They worked hard for their small hourly salaries. I realize that a bridge can not just magically appear. I said not all union workers are lazy. I am glad you decided to use the bridge in an analogy. God does work in mysterious ways. That being said, how can a bridge longer in length than the Tacoma Narrows be constructed for $150MM less than the estimate for the TNB in Tennessee? I heard part of the issue is the prevailing wage law we have for union labor in WA state. IT forces the construction labor costs to be much higher.

windie@67, I have no problem with Costco doing well, but on the other hand that doesnt make Sams Club, or Walmart an evel empire. Both (or all three) entities have their way of practicing buisiness, both do well at providing for the customer at a profit. On one hand Sams Club doesnt have the grip on the Puget Sound area that Costco does but prices in this state are largely overinflated anyway, but on the other hand I dont think Costco could open a store in Backwoodsville, Mississippi or some other depressed area and provide jobs as well as a product for a reasonable (in the area) price.

Donnageddon@73
I have no problem with anyone making whatever wage they have managed to negotiate, or in the case of unions the union scale, however I do have a problem with private contractors required to pat “prevailing wage” , a falsly inflated figure, but we have discussed that havent we, but, Donnageddon you continue to try to libel me, union hack!

Wouldn’t it be nice if every person in this wonderful country could have a job making $20 an hour with full benefits and 100% medical paid? We would not have a thing to worry about right. If I take a minute to reflect on history I believe this has already been tried it is called Communism and there is still some country’s trying to make it work, but most fail and most people who have lived the life don’t have a lot of good to say about it. If you’re not happy with the way things are run around hear maybe you should move to china and try out this alternative lifestyle. Fortunately we are protected by our government no mater how right or left wing it may be from this very thing and under that protection you have the right to your opinion no mater how left or rite wing it is. Both companies have good and bad points, both get there fair shear of good and bad press. But you should not believe every thing you read. As successful as both businesses are they both have very good and solid business models. But they are different businesses and should not be the same in every thing they do. As an American you have the rite to choose for your self witch business to patron. As an American you are also entitled to your opinion but don’t belittle or deny someone there opinion just because it differs from yours, there is a word for that also, its called fascism. Bottom line without ether of these “big box stors” the unemployment rate would be higher, goods would be more expensive, and even moor people would be with out medical insurance. Bottom line I guess is this, you chose where you wont to spend your hard-earned dollars and let others make that decision fore there selves.

Please Donate

I appreciate feeling appreciated. Also, money.

Currency:

Amount:

Can’t Bring Yourself to Type the Word “Ass”?

Eager to share our brilliant political commentary and blunt media criticism, but too genteel to link to horsesass.org? Well, good news, ladies: we also answer to HASeattle.com, because, you know, whatever. You're welcome!

Search HA

Follow Goldy

HA Commenting Policy

It may be hard to believe from the vile nature of the threads, but yes, we have a commenting policy. Comments containing libel, copyright violations, spam, blatant sock puppetry, and deliberate off-topic trolling are all strictly prohibited, and may be deleted on an entirely arbitrary, sporadic, and selective basis. And repeat offenders may be banned! This is my blog. Life isn’t fair.